How To Ruin Your Estate Plan By Signing A Stupid “Standard” Form
Martin Shenkman Contributor Forbes.com
Revocable trusts are about as common to estate planning as peanuts at a ballgame. These are contractual agreements between you (called the Settlor or Grantor) and the Trustee who manages the trust (which is typically you initially, and then a successor if you become incapacity). But look at the grief that using this common tool can provide when a revocable trust butts heads with silly legalese in other common legal documents. The problem is caused by poor lawyering that is overreaching, unnecessary, and which most folks sign without thinking about.
So, we’re going to run you through the estate planning prudent consumer test and see if you pass. Ready, set, go!
You set up a revocable trust to avoid probate, facilitate management of your assets as you age, and other good purposes. Good move and a common planning step (although most folks really don’t do them optimally and we’ll talk about that in a future column).
You are buying a new cooperative apartment to live in. Being a dutiful client, you heed your estate planner’s advice and recommendations to the real estate attorney handling your closing that the new coop is bought in the name of your revocable trust. So far, you’re doing pretty good.
Coops have lawyers too and lawyers love to create long legal forms, with provisions that extend beyond what might be reasonably necessary, for people to sign. So, the form agreement your coop requires you sign to approve your new apartment being held in your revocable trust has the following clause in it:
“No change, amendment, modification or revocation of the Trust Agreement shall be effective unless same is authorized by the Trust Agreement and this Agreement and until the Cooperative consents thereto in writing and receives and acknowledges receipt of any such change, amendment, modification or revocation by Certified Mail, Return Receipt Requested to the then Managing Agent for the Cooperative with a copy sent in the same manner to Tough Lawyer, Esq. at 123 Main Street, USA.”
The coop lawyer says they can’t change the agreement, it’s a “standard” legal form [a good sign there’s a problem] and “Everyone else has signed it so why are you complaining?” She’s probably right. Most consumers sign whatever “standard” form is put in front of them ‘cause its “standard!”
So, here’s the test…What are the consequences of this clause (other than wordiness)?
The provisions of the documents the coop provided restrict your ability to amend your revocable trust which has nothing to do with the coop management, protecting the coop, or anything that the Coop should care about. The agreement could and should provide that if you change your revocable trust any provision in the amended trust that contradicts or supersedes the agreements you made with the coop are void. That would seem reasonable to protect them. But this provision goes way further and prevents you from amending your revocable trust without their permission (it’s not effective). If you want to add a $10,000 bequest to your alma-mater, Go Blue, you need coop permission! And permission must be approved by the formalistic and assuredly time-consuming approach of getting coop approval and having that sent via certified mail to both the managing agent and the attorney for the coop.
Example: You’re on your death bed. A particular charity has made incredible efforts helping you with the health challenges you have. You want to leave 10% of your estate to that charity to thank and acknowledge their efforts and to enable them to help others. You call your lawyer and ask her to rush to the hospital to make the change and have you amend and restate your revocable trust to include the desired charity. The only problem is unless your lawyer must get the coop’s consent and that consent must be mailed to both the co-op’s managing agent and lawyer. While waiting for all these formalities, you die. The charity loses out. Hey, it could be worse.
Example: Say you broke up a year ago with your boyfriend, the bum, who you had left your entire estate to. You realize this and want to instead update your revocable trust and bequeath your estate to your nieces and nephews. Your lawyer, who is unaware of the quirky document you signed many years earlier with your coop has you sign an amended and restated revocable trust with the new dispositive scheme. Years later, after you pass, your former boyfriend discovers that the approval process was not complied with and uses the clause in the coop form to challenge the new distribution plan since the agreement you signed expressly said that no modification could be effective if the process mandated by the coop were not adhered to. No one adhered to it because no one remembered it and you have a new lawyer who had no idea.
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